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More than just a ruthlessly efficient company, the Indonesian app is seen as a must-have utility provider.
Amid the economic malaise due to COVID-19, Indonesia’s state-owned military company, Perusahaan Listrik Negara (PLN), reported a loss of $2. 8 billion in the first quarter of 2020. The company’s profits fell 96. 5% in the first six months of the year, necessitating relief in operating prices and capital expenditures. It would appear that the utility, which owns and operates Indonesia’s entire national power grid, is in dire straits. But that’s not entirely true. The PLN has rarely benefited without government help, and the massive losses it is suffering reflect not its suitability as a going concern, but its true nature as a provider of an essential public service.
PLN has a monopoly on the transmission and distribution of electric power in Indonesia. There are no wholesale markets or regional distributors, which means PLN has everything about what the customer ultimately pays. The app also supplies around 70% of the system’s electricity. power generation, with the remaining 30% coming from independent power plants.
The PLN buys electricity from these personal manufacturers in dollars, although it collects its profits from its consumers in rupees. When the rupee loses price rapidly, as was the case in March and April, it can create an imbalance in your currency exposure and lead to large losses. But this is only a symptom of a deeper structural irony, namely that the PLN’s number one objective is not yet to generate profits to supply electricity to the Indonesian population at moderate prices.
For many years, the NLP was only able to maintain a semblance of profitability through injections of public capital and government subsidies. These have shrunk a bit in recent years, but enforcement still relies on state money to stay afloat as operating expenses outpace revenue. The attractive thing is that this is not entirely due to poor control of companies (although there is a lot of it), but rather on purpose. The most important thing for the Indonesian government and its elected officials is not that the PLN is a market maker; The goal is for the Indonesian people to have access to reasonable electricity.
This goes directly to the heart of the PLN’s dual function as an appendage of a state capitalist system. Is it intended to be an effective company that maximizes shareholder value?Or is it intended to provide a must-have and inexpensive tool?public service, while posing as a company in order to raise cash in the capital markets?The Indonesian government would like to win on two fronts, but the fact that the NLP is lately offering – at the behest of the government – 31 million of its The pandemic, at a significant monetary cost, suggests that its primary role is that of provider of a public good.
At first glance, the PLN’s loss-making business plan might seem confusing. The utility, if it helps keep retail costs below its own production costs, will never be profitable. But the state is willing to socialize these losses necessarily in the interest of the State. to keep electric power affordable for consumers. Such an arrangement presents glaring problems, as the Ministry of Finance and the PLN tend to argue every year about the amount of cash that will come from the public coffers (the state has budgeted five trillion rupees for 2021, for example) and this creates a lot of uncertainty that is deeply related to political negotiations.
But this agreement has an internal logic, given some peculiarities of Indonesian political economy, and this has been highlighted during the pandemic. Indonesia does not have comprehensive unemployment insurance, and poor record-keeping and voluminous public administration make it difficult to obtain incentives. bills and social assistance to those in need in a timely manner. However, while the bureaucracy is busy doling out billions of dollars in aid, the PLN has already been quietly offering in-kind assistance to tens of millions of its consumers in the form of loose or downgraded electricity for months.
From a neoclassical economic point of view, it is difficult to analyze the maintenance of an inefficient monopoly in the entire national electricity market through the PLN. But in the context of Indonesia, it makes some sense, because it allows the state, through a cocktail of markets and socialized mechanisms, to ensure that consumers have access to affordable electricity, free from external shocks, such as fluctuations in producer prices or normal times, such as the one we are experiencing lately. This means that the PLN will most likely continue to lose cash this year and next, and that’s okay.
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Amid the economic malaise due to COVID-19, Indonesia’s state-owned military company, Perusahaan Listrik Negara (PLN), reported a loss of $2. 8 billion in the first quarter of 2020. The company’s profits fell 96. 5% in the first six months of the year, necessitating relief in operating prices and capital expenditures. It would appear that the utility, which owns and operates Indonesia’s entire national power grid, is in dire straits. But that’s not entirely true. The PLN has rarely benefited without government help, and the massive losses it is suffering reflect not its suitability as a going concern, but its true nature as a provider of an essential public service.
PLN has a monopoly on the transmission and distribution of electric power in Indonesia. There are no wholesale markets or regional distributors, which means PLN has everything about what the customer ultimately pays. The app also supplies around 70% of the system’s electricity. power generation, with the remaining 30% coming from independent power plants.
The PLN buys electricity from these personal manufacturers in dollars, although it collects its profits from its consumers in rupees. When the rupee loses price rapidly, as was the case in March and April, it can create an imbalance in your currency exposure and lead to large losses. But this is only a symptom of a deeper structural irony, namely that the PLN’s number one objective is not yet to generate profits to supply electricity to the Indonesian population at moderate prices.
For many years, the NLP was only able to maintain a semblance of profitability thanks to injections of public capital and government subsidies. These have come down a bit in recent years, but the application still relies on state money to stay afloat as operating expenses outpace revenue. What’s appealing is that this is rarely exclusively due to poor corporate control (although there’s plenty of that), but rather to design. The most important thing for the Indonesian government and its elected officials is not that the PLN is an effective market maker; The goal is for the Indonesian people to have access to reasonable electricity.
This goes directly to the heart of the PLN’s dual function as an appendage of a state capitalist system. Is it intended to be an effective company that maximizes shareholder value?Or is it intended to provide a must-have and inexpensive tool?public service, while posing as a company in order to raise cash in the capital markets?The Indonesian government would like to win on two fronts, but the fact that the NLP is lately offering – at the behest of the government – 31 million of its The pandemic, at a significant monetary cost, suggests that its primary role is that of provider of a public good.
At first glance, the PLN’s loss-making business plan might seem confusing. The utility, if it helps keep retail costs below its own production costs, will never be profitable. But the state is willing to socialize these losses necessarily in the interest of the State. to keep electric power affordable for consumers. Such an arrangement presents obvious problems, as the Ministry of Finance and the PLN tend to argue every year about the amount of cash that will come from the public coffers (the state has budgeted five rupees). trillion for 2021, for example) and this creates a lot of uncertainty that is deeply related to political negotiations.
But this agreement has an internal logic, given some peculiarities of Indonesian political economy, and this has been highlighted during the pandemic. Indonesia does not have comprehensive unemployment insurance, and poor record-keeping and voluminous public administration make it difficult to obtain incentives. bills and social assistance to those in need in a timely manner. However, while the bureaucracy is busy doling out billions of dollars in aid, the PLN has already been quietly offering in-kind assistance to tens of millions of its consumers in the form of loose or downgraded electricity for months.
From a neoclassical economic point of view, it is difficult to analyze the maintenance of an inefficient monopoly in the entire national electricity market through the PLN. But in the context of Indonesia, it makes some sense, because it allows the state, through a cocktail of markets and socialized mechanisms, to ensure that consumers have access to affordable electricity, free from external shocks, such as fluctuations in producer prices or normal times, such as the one we are experiencing lately. This means that the PLN will most likely continue to lose cash this year and next, and that’s okay.
Amid the economic malaise due to COVID-19, Indonesia’s state-owned military company, Perusahaan Listrik Negara (PLN), reported a loss of $2. 8 billion in the first quarter of 2020. The company’s profits fell 96. 5% in the first six months of the year, necessitating relief in operating prices and capital expenditures. It would appear that the utility, which owns and operates Indonesia’s entire national power grid, is in dire straits. But that’s not entirely true. The PLN has rarely benefited without government help, and the massive losses it is suffering reflect not its suitability as a going concern, but its true nature as a provider of an essential public service.
PLN has a monopoly on the transmission and distribution of electric power in Indonesia. There are no wholesale markets or regional distributors, which means PLN has everything about what the customer ultimately pays. The app also supplies around 70% of the system’s electricity. power generation, with the remaining 30% coming from independent power plants.